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Summary Of Today's Festivities From Goldman and Morgan Stanley: Run From The Euro
The whole world is still stunned from what just happened today. In essence, Germany has taken a major step to not only declaring it is the master of the European continent and all those who don't like it can just focus on their own bankrupt banks (Sarkozy), but is breaking ranks with the US, as the surprising nature of today's move was aimed not so much at European "speculators" but at Wall Street. Furthermore, knowing full well it may soon lose access to US capital markets, Germany is likely preparing to abandon the EU and EMU (to which "good riddance" is likely all it has to say). But the key implication from today is that Bernanke must now move with urgency to find a way to keep the pressure on the dollar as he is now solidly losing the currency devaluation race. The impact of this on major multinationals and on the "must do" reflation experiment could be cataclysmic. Additionally, without gobs of new domestic liquidity to prop it up, the US market will now likely collapse, further forcing Bernanke to act against the interests of the US Middle class and America's savers. We can not wait to see what he pulls out of his sleeve. With ZIRP ravaging the nation, and negative interest rates still illegal, he may just find his hands very much tied.
In the meantime, here are some preliminary shocked observations on today's events from Goldman Sachs and Morgan Stanley.
GS' Erik Nielsen:
I just landed in Heathrow to find the astonishing headline that the german finance minister reportedly is planning a ban on shorts (of what?). - and I found dozens of emails from people asking what's going on.
Dirk Schumacher is on the case and will report as soon as he gets any clarification. His immidiate reaction was that it might be a political statement to help ease through the vote in the german parliament on the mega package on friday.
and
Germany’s Bafin has just put out a press release banning short selling of sovereign CDS starting tonight and lasting through March 31, 2011, possibly inspired by the UK and US banning of shorts at the height of the financial crisis (Reuters’ English translation of headlines below)
In our view, its likely that this drastic move has been triggered by the planned passing by parliament of the German share of the EUR 440bn package on Friday. Dirk Schumacher, who also just landed has heard that there seems to be more resistance to the help package than previously thought.
So far, we have not heard of similar moves in other Euro-zone countries, but it seems likely that several of them might follow suit later this week. As I discussed in my note on Sunday, policymakers are determined to protect the Euro-zone, and they have identified the financial markets as the key obstacle for stability, which implies risks of further regulation.
Stay tuned as we learn more
Dirk & Erik
19:28 18May10 RTRS-GERMANY'S BAFIN ANNOUNCES BANK ON NAKED SHORTSELLING OF CDS ON EUROZONE GOVERNMENT BONDS
19:31 18May10 RTRS-GERMANY'S BAFIN SAYS BAN TAKES EFFECT FROM MAY 19 TO MARCH 31, 2011 AND 'WILL BE CLOSELY MONITORED'
19:32 18May10 RTRS-GERMANY'S BAFIN SAYS BAN ON SHORT-SELLING ALSO APPLIES TO SHARES OF 10 LEADING FINANCIAL INSTITUTIONS
19:33 18May10 RTRS-GERMANY'S BAFIN SAYS STEP 'DUE TO EXTRAORDINARY VOLATILITY WITH GOVERNMENT BONDS IN EURO ZONE'
19:35 18May10 RTRS-GERMANY'S BAFIN SAYS MASSIVE SHORT SELLING COULD HAVE LED TO EXCESSIVE PRICE MOVEMENTS
19:36 18May10 RTRS-GERMANY'S BAFIN SAYS MASSIVE SHORT SELLING COULD HAVE ENDANGERED FINANCIAL SYSTEM STABILITY
19:40 18May10 RTRS-GERMANY'S BAFIN SAYS SHORT SELLING OF SHARES BANNED AT AAREAL BANK AG, ALLIANZ SE, COMMERZBANK AG
19:40 18May10 RTRS-GERMANY'S BAFIN SAYS SHORT SELLING OF SHARES BANNED AT DEUTSCHE BANK AG, DEUTSCHE BOERSE AG, DEUTSCHE POSTBANK AG
19:41 18May10 RTRS-BAFIN SAYS SHORT SELLING OF SHARES ALSO BANNED AT GENERALI DEUTSCHLAND HOLDING AG, HANNOVER RUECKVERSICHERUNG AG
19:42 18May10 RTRS-BAFIN SAYS SHORT SELLING OF SHARES ALSO BANNED AT MLP AG AND MUENCHENER RUECKVERSICHERUNGS-GESELLSCHAFT AG
and Morgan Stanley:
EUR/USD plunged to a fresh 4-year low this afternoon. Reports that Germany's financial services regulator BaFin will issue new restrictions on short selling appeared to be the key catalyst sparking widespread EUR selling. To some extent, the surprise announcement was interpreted as another incremental measure treating one of the symptoms of the problems in the Eurozone, rather than getting to the direct cause. In that regard, the lack of a comprehensive plan is feeding into market concerns about the credibility of EU policymakers in dealing with the spillover from sovereign risk issues (this is similar to the challenges US authorities faced in 2008). In addition, the announcement may have the unintended consequence of channeling more investors into short EUR positions. If investors cannot express negative views on the EU in the bond or CDS markets, short EUR could prove the path of least resistance.
The volatility the announcement sparked in equity markets, spilled over into FX as a safe-haven bid. The USD appreciated against higher-beta currencies such as the AUD, NOK, SEK and ZAR. The Japanese yen also posted strong gains on the day.
Earlier today, we took partial profit on the core short EUR/USD position in our model portfolio after the pair touched our initial target of 1.24. But given our medium-term bearish outlook, we maintain a 15% allocation to short EUR/USD. While the short EUR trade appears to be increasingly crowded, the unexpected nature of the policy announcements is increasing market volatility and weighing on sentiment. Moreover, EUR/USD also seems to be taking its cue from risk aversion. Though it is difficult to gauge how persistent this latest bout of risk aversion is likely to prove, our GRDI indicator remains in deep risk aversion territory, below the -2 standard deviation mark. The downtrend in EUR is getting increasingly sloppy, but the momentum does not seem to be fading.
What is hilarious about the Morgan Stanley note is that less than 12 hours ago the firm sent out the following:
We have decided to take partial profit on the core short EUR/USD position in our model portfolio, paring down the position to 15% from a 25% allocation and tightening our trailing stop-loss to 1.34. This trade was initiated originally on December 17, at an average entry level of 1.4085, and we are exiting at 1.2365, locking in a gain of 12.6%. Year-to-date, our model portfolio has generated an unlevered return of 4.81%, with the short EUR/USD position accounting for a large portion of this performance.
While we retain a negative medium-term view on EUR/USD, we believe that short positioning and bearish sentiment have reached extreme levels, raising the potential for a bounce. Indeed, our momentum indicators suggest that the four-week decline in EUR/USD is the sharpest since the single currency was launched in 1999. This would imply that many investors have added to short EUR positions at weak levels. In addition, the IMM Commitment of Traders Report on Friday showed that net EUR short positions expanded to -114k, a new record that roughly mirrors the +120k record net long in EUR positions back in May 2007.
This suggests that the saturation point in EUR net shorts is within reach.Though we see downside risks to the EUR stemming from weaker growth and spillover from the sovereign risk concerns, the emergency measures recently adopted by European Union policymakers are likely to lead to some stabilization in the short term. The ECB’s liquidity provisions should help to calm markets and the pre-emptive fiscal tightening taken by some peripheral eurozone governments should help to mitigate contagion concerns.
However, since many of the policies enacted so far have not addressed longer-term structural threats facing the eurozone, we would look for opportunities to re-set shorts. We also believe that the EUR will prove vulnerable to signs that the nascent eurozone expansion is struggling. We view 1.28-1.32 as a favorable sell-zone for EUR/USD.
We will offer additional details regarding our views in the FX Pulse this Thursday.
Just goes to show once again, that the bulge brackets are about as good as predicting the future as your ordinary run off the mill deranged gambling coin tosser.
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Euro has now made a decisive move south of 1.22.
And after digging its claws in at 1.22 for what was really a fight for its life, it's now headed to 1.21 with apparently no air under it. There better be some good news overnight, is all I have to say.
Been fighting the urge for a couple of weeks now....anyone mind if I let out just a small Howl?
You know, we ordinary run of the mill deranged gambling coin tossers have feelings, too!
Sure ya do, strong feelings about the outcome of the last coin flip!
Sounds like they're, in effect, going to end up doing absolutely nothing to solve the bond yield problem at the heart of their sovereign debt crisis.
True. Another way of saying it:Less ways to hedge risk via CDS and other shorts means unshorted positions carry more risk; therefore higher yields
Unintended consequences - think they would bother to mention by banning short selling they have effectively sucked massive liquidity out of their markets. So, if I can't short, then I just won't play, taking my money with me over the the FX market.
What on earth are these bastards thinking? More PIIGS to follow suit by the end of the week? Oh my....
Governments rarely, if ever, think before they act. I can't imagine how little new legislation (and therefore need for politicians) there would be if politicians ever acted in a non-kneejerk fashion. To make matters worse, they can never admit they made a mistake, so obviously bad and counter-productive policies stay in place until someone else gets elected. I can't imagine how much money I would lose if I traded like a politician. "Hmmm, this shorting gold strategy is not working. I think the solution must be to short more. Drat! Still not working! I'm not getting out of this trade because that would be tantamount to admitting I was wrong!!!"
They are playing chess, but thinking only one move in advance. Of course, they also know they can turn over the chessboard at any time. Athough they probably haven't stopped to consider it, there's a term for when they do that, : Game Over.
Well put. These dumb politicos can only react to the issue at hand without consideration for any side effects resulting from their "solution."
If the brakes in my car were squeaking, their recommendation would be to remove them. If not that, then apply a good amount of grease to the disc and brake pad.
It would indeed eliminate the squeaking noise.
Thinking one move ahead is by definition checkers, not chess. So yes, they've turned the chessboard over and are playing on the checkers side instead.
Perhaps we should tell them...
By the way, Prof, love the hair!
MP
Some of them must be buying the bank triple short-FAZ, as it has popped after hours.
Think Cornyn had anything to do with this decision by BaFin?
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100005734/co...I'm thinking Cornyn had everything to do with this decision. The "deep-pocketed taxpayers" are bailing on the EU.
Germany simply closed the door for the upcoming "Euro"-"cage match"-"brawl". They will have a public/internal dicussion about leaving the euro and re-starting the Deutschmark. I suspect they will run with both currencies domestically for a while and then complete the move to the Deutschmark after a "reasonable" period of time.
I see this as positive for the Germans and for the world in general. The last thing the Germans want is everyone to game their exit of the euro.
It does looks that way. Cornyn surely was a game changer. Let Greece restructure now, within the euro? And, devalue the euro by 30%? I just can't imagine the euro going away. There is too much at stake politically. Also, of course, tanking the euro would improve exports and allow governments to sell bonds from such a low exchange rate that the euro can only go up. If the euro devalues all at once they can then defend that position. What am I missing?
During the Dirty Thirties, people looked to the governments to help them through the hard times.
Today, people see government as the creator of the hard times. Govenment was "supposed" to regulate the markets and not let things get out of hand. Now you can blame any political party you want in any country, but they all played the same game. Confidence is gone; in both the market and in government. Corruption reigns supreme. In that environment, I don't see the solution coming from "more" government. You are about to see the "Tea Party" movement go global. Call it nationalism or call it pragmatism. It seems clear that you have to look after yourself. You can't count on government to save you.
In that light, I suspect walking away from the euro will be very easy. Germany will give the decision a great deal of deliberation whereas the French will likely study the Germans. When the French become convinced that the probability that Germany will leave the Euro is high, the French will "bolt". The Germans will follow suit. With those two "powers" out of the equation, the euro could well disappear overnight. I think that is why the Austrians et al are buying gold.
In that environment, everything will be good until it isn't. Once the DM is up and running, Germany will get things back on track. The rest of the EU will follow Germany's lead.
Absolutely! the french will not want to miss and opportunity to be the first one out the door! Viva La Resistance!!
Sounds reasonable. Near term panic, long term positive.
Sounds like the Germans are telling the rest of the world that they can take their hyper inflation plan and shove it cause they aren't gonna play that game again.
It does look like the adults are trying to assert authority in Germany. It will be interesting to see the political pressures brought against Germany if they still refuse to play ball after their Friday vote on the 1st of unlimited EU bailouts.
I can't wait to see how my beloved Americans deal with the EU tsunami coming to our shores. Maybe it will wash away some of that BP oil.
CD - enjoy yr posts but disagree here.
This isn't a grown up move, its the move of a desperate, finacially illiterate political class, looking for the lowest hanging fruit.
Cant help thinking Germany just lost 65 years of market confidence in 1 day. Sell the DAX.
For the US this sends DXY to 90+, even Walmart cant make money then. Obama must be mad as hell.
Germany is thinking about wealth preservation. They want to do the "best" for the "most". There will be winners and there will be losers. The Germans are playing to win.
What's in your wallet?
Those Germans....are they Nutz?!
"knowing full well it may soon lose access to US capital markets"
Capital? like in: wealth in the form of money or property owned by a person or business and human resources of economic value.
Ermmmm, right...I must be missing something here....
LMAO
That is one explanation for this desperate measure but it doesn't feel like that's all. Plus, bombastic announcements don't have a calming effect in the financial markets... so, I'm sure there are more critical reasons and "measures" to come.
Didn't hear these tossers complain when the SEC protected their asses from short selling
U.S. Dollar on a tear.
Peter Schiff must be wetting his pants....
Funny how the countries with the MOST DEBT have the strongest currencies...
U.S. and Japan.
Ya that should be the euro on a tear about to do a bailout. But luckily Ben never met a debt slave he didn't like.
Deflation anyone
Headline-"Countries Collapse in a Conundrum"
I like heavy down market days. Tyler Durden posts more often these days.
Greek bailout denied. Euro on last legs. Germany wants to save banks from speculation when the truth comes out.
You said it first rawsienna. Prepare for Greek bankruptcy..... The count down has commenced.
This must be correct. Or there is something even worse in the pipes, like UK or Spain freaking out. Damn .... this could go so badly I don't think anyone who isn't head of a central bank can even imagine. There must be some very sketchy monsters swimming in the deeps of the money pit.
But what I really want to know is:
Where is the Wangman, to help us ferret out the good news in this, the best of all possible announcements?
He capitulated on another thread. Right in broad daylight. You could smell the panic.
I've been heavily critical of Harry and his perpetual bs bullishness, but in fairness to him, at least he did publicly capitulate and admit that things are in fact not as rosy as he thought (or would have had us believe, at any rate).
I'll agree with you Al -- a little bit. Though I fully expect Harry to be back "buying the dips tomorrow." However, the full out capitulation in broad daylight was nice to see.
"My name is Harry Wanker, and I am a pumpaholic."
First step is the hardest.
I think it's DB about to blow up, with lots of knock-on effects in the US.
Most of the big euro banks green today, except DB.
I suspect "deranged gambling coin" could come out of that last sentence....
I have to disagree.
In a world where the bankers own the white house and can create as much liquidity as they want to short anything with unlimited leverage because the US is the world reserve currency, countries need protection. What that means dear reader is that any price you see in the market can be manipulated and can be the price that they wish it to be.
In fact, cities and states within the United States also need protection from the bankers in addition to countries around the world. The Bid Rigging story today that ran in the frontrunning section of ZH is huge (it deserves its own post) and shows bankers did indeed collude and coordinate their actions to defraud municipalities. There can no longer be claims of conpiracy theory, it is in reality conspiracy fact.
The world needs protection from them since they are stealing all around the world. If they were gambling with hard earned money I would have no problem with them making a fair bet where the taxpayer wasn't on the hook. The problem is that with free money from BB which is then levered up 40X, assholes are allowed to set price and move the market where there is no LEGITIMATE CAPITAL.
Understand the difference between real money and fake manufactured confetti. In fact, derivatives were supposed to be used as an insurance hedge based on an underlying real something. We are in a carnival house of mirrors where these derivatives are larger than the underlying and are actually directing the underlying. So instead of a derivative, the cause and effect is completely reversed.
If we took all the unlimited printing press capital in the world and shorted the Euro, it could go to zero. What sense would that make? We need parameters because of the almost unlimited leverage and liquidity given to the banks/hedge funds.
damned right it's a huge story. It's been knocking around for almost a year, civil litigation everywhere...but little media coverage. The names under criminal investigation were actually leaked "accidentally" by the plaintiff in a civil filing, then sealed or withdrawn. The DOJ entered the case on a motion to limit plaintiff's discovery under my assumption of not screwing up the prosecution or protecting banks. If it's the later, it will be noticed and not a small deal for the democrats, so I'm assuming the former.
credit integrals!
This the story?
So, you can short/hedge the bonds if you own them, but can't naked short them? What's wrong with that. I thought that's where most people's thinking was anyway.
Agreed, the naked shorts serve no legitimate purpose.
But the key implication from today is that Bernanke must now move with urgency to find a way to keep the pressure on the dollar as he is now solidly losing the currency devaluation race.
***********************************
All Bernanke needs to do-is give a bullish signal to Gold-if he wants a lower dollar-
Hope he knows this and it's driving him crazy--
Umm, doesn't he basically have to admit to inflation or even hyper inflation to accomplish what you propose? That seems to go against the cards in his hand...or possibly even in his deck.
I hear ya, that always seems like a prob with the dollar devaluation theory. All you got to do is have some report leaked talking about an evaluation of any other reserve currency, and the dollar is down.
However, if all the Fed's doing it trying to maintain our reserve currency status and to look like the safest investment out their so we can keep selling insane amounts of debt at low yields, this is working great.
Impossible. He can never use that option. Gold is his enemy.
it doesn't solve the problem, all currencies will fall and the relative ratio between Us dollar and euro will not change, besides it will also show that the king is naked.
on Tue, 05/18/2010 - 17:42
#359388
Impossible. He can never use that option. Gold is his enemy.
it doesn't solve the problem, all currencies will fall and the relative ratio between Us dollar and euro will not change, besides it will also show that the king is naked.
**********************************
It "would" weaken the dollar--"that" is Bernanke's problem-the dollar is too strong--
I realize he "cant" use that option--but-my point -being--
It would solve Bernanke's strong dollar problem--
Do not think he can weaken the dollar against gold. That would be too dangerous.
Also the German moves look stupid and may be stupid but I my intutition tells me they are the first to parke their butts in the lifeboat.
No, that's not corrrect. US bonds are way up as the flight to quality trade kicks in. Bernanke has been able to fund the treasury's deficit easily for the first time in a long while.
I'm still taking intro to Econ 101--but if the Germans prevent naked shorting on sovereign CDS, won't American hedge funds blow up?
Someone help me out---But wasn't the basic sovereign CDS trade was to buy sovereign CDS, and hedge the bet by shorting the EURO? So now that there will be a CDS short squeeze, and the ECB buying Euros, won't that make hedge funds playing the CDS trade go bust?
bhahahah..
Even government intervention can create black swans that bust hedge funds. And good riddance.
Devaluation coming to a wallet near you.
remember the strong dollar they were talking about last fall..
stopping that is a fart in a whirlwind, when will the whirlwind stop
No, this is wrong. US bonds are attracting a strong bid from the flight to safety trade. Bernie is able to fund the US deficit easily for the first time in a long while.
I still think that they did this not in reaction to events that have occurred, but because they know some other event is coming down the pipeline, maybe Greek debt restructuring, etc, and they want to have the mechanism in place so that things don't get blown out. I have a feeling that things are going to be getting worse in the next few weeks...
+1
Govts only notice or care about naked shorts or the countless other rigging games that have become so routine, when its their own polictical asses on the line.
Those big IBs and hedge funds need busting, and fuck their liquidity anyway.
Mainstream media people see it as their "duty" to avoid scaring the markets.
They think that their articles can "move markets," and that declining prices are bad. Therefore, they will continue to do what they think is "good" - prop up shitty asset prices like their lives depend on it.
Their editors give them shit for negative articles.
It's a psychotic little system.
looks like they are going to try the melt up tonight on the Euro before the next fall, almost broke thru the 1.215 mark but not quite
You might want to check that one more time...it just fell out of bed for now. Maybe it can drag itself back up one more time, but it's not looking so hot right now.
Current checklist:
Gold (x)
Silver (x)
Land (x)
Water (x)
Food (x)
Guns (x)
SPY Puts (x)
Euro Puts (x)
Sterling Puts ( )
China ??? Puts ( )
Nope, as people here would have you believe all you need is guns and ammo.. and perhaps something called livestock. Im not too familiar with what the latter is, but i also doubt the person's abilities to make use of said item unless it comes in the form of a big mac.
Eur/jpy is seriously looking sick...
Suddenly the story cited here in ZH from a few day's ago in http://www.godlikeproductions.com
that a German bank employee had seen feshly printed D-mark does not seem too conspiratorial any longer.
You may be right, you may be right. Could it be that they are setting up to leave the Euro by deciding if this must implode better to start it right now. I didn't know that Germanys part of the 1 Trillion was 446 billion euros or dollars, if that is the case and my country was putting half the bill of this fiasco, then it won't matter that Germany leaves. Because they still are 50% of the market and people will take their money if they have to. For them to do what they did, doesn't sound like that it has to do with people shorting the 446 billion part that they are voting on Friday. I think that rumor that got squashed a few weeks ago that Germany was going to leave the euro currency may not been to far off, hell the french president said it last week and he hasn't denied it. Screw it, just do it.
What is the week on week cost to collateral of holding a foreign risk asset? Who they going to call?